Business Financials in Plain English: a Focused Overview

Business Financials in Plain Business Financials in Plain EnglishEnglish A Focused OverviewA Focused Overview

Former Executive with Fortune 500 Companies

Licensed Clinical Social Worker

Series 6 and other Financial Services Licenses

Nationwide and International Speaker, Published Author

Member of the Society for Neuroscience

Certified Executive Business Coach

Owner of an International Coaching Business

Jonathan Jordan

Just a Little Bit About Me…

The Sad Story of Tom…

Why Know Your Financial Numbers?

Greater awareness of financial health of the business

May reveal otherwise looming financial issues

Greater day-to-day money management

Knowing what is, and what isn’t, making a profit

Data-based decisions and accurate projections

Easier to value the business

Increases the value

Easier to sell/exit

3 Basic Business Financial Reports

Balance Sheet

A financial snapshot of the business

Cash Flow Statement

The amount of money that flows into and out of the business

Profit & Loss Statement (P&L)

The amount of money earned or lost by the business

Balance Sheet Definition

A financial record of a business, showing what it owns (assets), what it owes (liabilities) and what is left over for the owners

(shareholders) after what it owes is deducted from what it owns (the net worth or equity).

Net-Worth Calculation

Cash/Bank Funds

Real Estate (full value)

Furniture & Equipment (depreciated value)

Intellectual Property & Other Intangible Assets

Inventory

Loans

Mortgage/Rent

Equipment Leases

Business Credit Card

Professional Memberships

Taxes

Sample Balance Sheet

Net Worth vs Cash Flow

Cash-Flow Calculation(Usually Monthly)

Client Fees

Product Sales

Speaking Fees

Book Royalties

Rent (paid to you)

Bank Loans

Business Mortgage/Rent

Utilities

Payroll

Supplies

Predictable Cash Flow is Critical

Know your average monthly in-flow, and your average monthly out-flow

Cash In-Flow Tracking Example…

Year: 2011Actual $ Received

YTDAverage $

Monthly Yearly

GoalProjected Yearly

$Projected Goal

%

Service Line 1 YTD 27,000 9,125 100,000 109,501 110%

Service Line 2 YTD 11,000 3,718 53,000 44,612 84%

Product Line 1 YTD 19,000 6,421 67,000 77,056 115%

Product Line 2 YTD 34,000 11,491 130,000 137,890 106%

Grand Total YTD 91,000 30,755 350,000 369,060 105%

Cash Flow vs Profit & Loss

Depreciation:

An expense recorded to allocate an asset's cost over its useful life. Because depreciation is a non-cash expense, it increases

cash flow while decreasing reported profits 

Cash Basis vs Accrual Basis

Cash Basis: Records income when it is received, and expenses when they are paid

Accrual Basis: Records income when it is earned and expenses when then are incurred - regardless of when the money for the transactions is actually received or paid

For example, this M3 event on April 4, 2011…

Under the accrual method, the expense will be recorded today (the day of the event)

Under the cash method, the expense will be recorded on the date that you actually paid for the event

ABC Company

Profit and Loss Statement

Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

SalesNumber of Units 10 15 20 20 20 30 40 50 60 60 60 60Selling Price 800 800 800 800 800 800 800 800 800 800 800 800

Total Revenue 8,000 12,000 16,000 16,000 16,000 24,000 32,000 40,000 48,000 48,000 48,000 48,000

Cost of GoodsUnit Price 500 465 465 465 465 465 465 448 448 448 448 448 Cost 5,000 6,975 9,300 9,300 9,300 13,950 18,600 22,400 26,880 26,880 26,880 26,880 Commissions - - - - - 2,250 3,000 3,750 4,500 4,500 4,500 4,500

Gross Profit 3,000 5,025 6,700 6,700 6,700 7,800 10,400 13,850 16,620 16,620 16,620 16,620

ExpensesTelephone 200 40 40 40 40 40 40 40 40 40 40 40 Computer 120 120 120 120 120 120 120 120 120 120 120 120 Office Expense 200 30 30 30 30 30 30 30 30 30 30 30 Advertising 460 300 300 300 300 600 600 600 600 600 600 600 Travel - - - - - - - - - - - - Insurance 40 40 40 40 40 40 40 40 40 40 40 40 Professional Fees - - - - - - - - - - - 500 Depreciation 200 200 200 200 200 200 200 200 200 200 200 200 Auto Lease - - - - - - - - - - - - Misc. Expenses 20 20 20 20 20 20 20 20 20 20 20 20 Bank Charges 20 20 20 20 20 20 20 20 20 20 20 20 Interest - - - - - - - - - - - -

Total Expenses 1,260 770 770 770 770 1,070 1,070 1,070 1,070 1,070 1,070 1,570

Profit 1,740 4,255 5,930 5,930 5,930 6,730 9,330 12,780 15,550 15,550 15,550 15,050

ABC Company

Profit and Loss Statement

Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

SalesNumber of Units 10 15 20 20 20 30 40 50 60 60 60 60Selling Price 800 800 800 800 800 800 800 800 800 800 800 800

Total Revenue 8,000 12,000 16,000 16,000 16,000 24,000 32,000 40,000 48,000 48,000 48,000 48,000

Cost of GoodsUnit Price 500 465 465 465 465 465 465 448 448 448 448 448 Cost 5,000 6,975 9,300 9,300 9,300 13,950 18,600 22,400 26,880 26,880 26,880 26,880 Commissions - - - - - 2,250 3,000 3,750 4,500 4,500 4,500 4,500

Gross Profit 3,000 5,025 6,700 6,700 6,700 7,800 10,400 13,850 16,620 16,620 16,620 16,620

ExpensesTelephone 200 40 40 40 40 40 40 40 40 40 40 40 Computer 120 120 120 120 120 120 120 120 120 120 120 120 Office Expense 200 30 30 30 30 30 30 30 30 30 30 30 Advertising 460 300 300 300 300 600 600 600 600 600 600 600 Travel - - - - - - - - - - - - Insurance 40 40 40 40 40 40 40 40 40 40 40 40 Professional Fees - - - - - - - - - - - 500 Depreciation 200 200 200 200 200 200 200 200 200 200 200 200 Auto Lease - - - - - - - - - - - - Misc. Expenses 20 20 20 20 20 20 20 20 20 20 20 20 Bank Charges 20 20 20 20 20 20 20 20 20 20 20 20 Interest - - - - - - - - - - - -

Total Expenses 1,260 770 770 770 770 1,070 1,070 1,070 1,070 1,070 1,070 1,570

Profit 1,740 4,255 5,930 5,930 5,930 6,730 9,330 12,780 15,550 15,550 15,550 15,050

Sample P&L Statement

Profit & Break-Even Point

Break Even

The Danger of Discounting…without knowing your profit

margins

Presenter Contact Information

Jonathan Jordan

President, Global Change Management, Inc.

Please feel free to contact me with any follow up questions or comments

E-mail: [email protected]